Breakthrough Food Product Innovation Through Emotions Research

Table of Contents

Cover image

Front Matter

Copyright

About the Author

Preface

Acknowledgments

Chapter 1. Change in the Food Industry

Chapter 2. Innovation

Chapter 3. The Innovation Team

Chapter 4. The Science of Emotions

Chapter 5. Emotions Research

Chapter 6. Strategy Development

Chapter 7. Discovery

Chapter 8. Define

Chapter 9. Design

Chapter 10. Development

Chapter 11. The Innovation Company

Appendix 1. A Summary of the Basic Principles of Behavior-Driven Innovation

Appendix 2. A Summary of the Goals, Guardrails, and Deliverables of Each Phase of Behavior-Driven Innovation

Color Plates

Index

Front Matter

Breakthrough Food Product Innovation

Through Emotions Research

David Lundahl

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About the Author

Dr. David Lundahl is an expert in applying consumer and marketing research to product innovation and development, bridging the gap between brand and consumer through a behavior-driven approach to innovation. Trained as a statistician and a food scientist, he is known for his statistical applications to product development. Yet, his passion for innovation has led him down a unique path. He brings to innovation teams a diverse set of disciplines, including innovation process management, marketing research, and behavior psychology.

As a consultant and educator, he has applied his expertise to help companies bring to market successful innovative products within the consumer packaged goods (CPG) industry.

Lundahl was a founding faculty member at the Oregon State University Food Innovation Center in 1996. He chaired the Sensory and Consumer Sciences Division of the Institute of Food Technology in 2000. Further, he has taught numerous workshops on applying consumer research to product innovation and development, has written numerous publications, and has been a keynote speaker at various industry conferences.

In 2003, Lundahl founded InsightsNow, which was recognized in 2010 as one of the fastest growing US-based marketing research companies. His vision to change the game through innovation has led to the formation of a new behavioral framework for breakthrough food product innovation. He lives in Corvallis, Oregon, with his wife and three daughters.

Preface

Innovation has been a focal point of my professional career since the early 1990s. Having received a PhD in Food Science & Technology and a MS in Statistics from Oregon State University, I was well acquainted with science and the scientific method. However, I quickly learned that the application of scientific methods is not the same in industry as in the university. Successful innovation requires learning that often goes beyond science and scientific methods. I found many of the scientific methods useful in the university environment to be inadequate in the industry. They often lacked insights that inspired creativity and did not factor in human intuition to drive decisions.

My professional career started in 1989 as a researcher for Frito-Lay within their Research and Development division. At Frito-Lay, I worked within the consumer product research team. This team pioneered a number of methods in the 1980s to automate consumer product research. The efficiency and effectiveness of this program was so successful that it propelled Frito-Lay into an industry innovation leadership role. In 1991, I was assigned to the Baked Lays product development team where I experienced (first hand) the innovation case study discussed in Chapter 2. My experiences at Frito-Lay laid the foundation for many of my beliefs about the role of research in innovation and product development.

In the course of these past 20 years, I have seen technology impact the food industry in a number of ways. Certainly, the speed and diversity of research information has opened up new vistas for how to bring new and improved products to market. However, technology has also fundamentally impacted the way consumers behave and their speed of change. Consumers now have immediate access to information that shapes how they select, seek, share, and react emotionally to brands, products and product experiences.

The food industry is struggling to adapt to this consumer change. In the early 2000s, it became clear that researchers were falling behind in delivering insights of strategic value to decision makers. In 2005, the value of emotions research began to take shape as a key to deepening insights of more strategic value. My colleagues at InsightsNow and I began to explore more holistic research approaches to understanding the whys of consumer behavior. We began to piece together a new framework that could integrate a mix of qualitative and quantitative research information. This led to the early ideas behind this book – the emergence of emotions research.

In 2007, behavioral psychology began to take center stage as a key contributor to understanding consumer market behavior. Behavioral economics, with its roots in behavioral psychology, was being applied in different vertical markets to nudge people along in their behaviors. However, behavioral economics had yet to find applications in the food industry. This all changed with the recession that impacted the food and other consumer packaged goods industries in the fall of 2008. Change in consumer behavior occurred so rapidly that no one in the food industry was spared. It was a clear signal that emotions were a major factor in driving market change. It was clear that the time was right for a new, behavior-driven approach to food product innovation.

In mid 2009, I formed a team of industry colleagues to provide critical thinking around the ideas that inform this book. Over a 22 week period, they provided critical feedback on the materials presented within each of the 11 chapters for this book. This team included Dr. Mina McDaniel, Simon Chadwick, Bill Graves, Frank Hall, Greg Stucky, Norm Galvin, and Alec Maki. Mina was my advisor for my PhD program and is a world-wide expert in sensory science. Simon Chadwick is the former Global Chief Executive Officer for NOP and a leader in the marketing research industry. Bill Graves is the former Senior Director of Consumer Insights for Kraft Foods. Frank Hall is an expert in business development and a consultant in technology and innovation. Greg Stucky, Norm Galvin and Alec Maki are colleagues at InsightsNow. Greg is our Chief Research Officer, Norm our Executive Vice President, and Alec our VP of Product Development.

Once the material was gathered for writing this book, it took another year of baking to get it right. I have been very impressed with the professionalism and editorial contributions from those at Elsevier. It is my hope that you will find this book stimulating, and disruptive, and that it will set a path ahead for you to change the game in how food products are developed from ideas into breakthroughs.

Acknowledgments

I must acknowledge all the members of the industry team who contributed their time to provide critical thinking to the content in this book. Among this group, I highlight the contribution of Greg Stucky. He and I have worked together since 1996 – first at InfoSense and now at InsightsNow. His insights have been extremely helpful in thinking about how innovation teams learn – how insights and information must carry over from phase to phase. He has also contributed to thought on how to achieve insights for incorporating product cues that signal emotional impact. Further, his insights have contributed to thought about the importance of achieving harmony between the components of products.

I also acknowledge Dave Plaehn, who has worked with me since 1997, first as my Research Associate when I was still a professor at Oregon State University and then over the years we have worked together at InfoSense and InsightsNow. Dave is the chief contributor to a number of innovative analytic methods which I have had the pleasure to publish with him over that period. I also acknowledge the contribution of Doug Hansen – a graphic artist – and Alec Maki, who have been instrumental in translating complex ideas into a number of outstanding graphical images used throughout this book.

Finally, I must thank my family for putting up with my many long hours spent writing this book. This includes my wife, Shelly, and our three children, Erika, Johanna and Christina. At the time this book was written, Erika was a junior studying Writing at Ithaca College in New York. She was very helpful in contributing to the editing of the book chapters.

David Lundahl

Chapter 1. Change in the Food Industry

If you don't create change, change will create you.

Anonymous

Change in the food industry is being driven by historic changes in society. Recent advances in technology have led to mass collaboration, with the emergence of a more proactive consumer, who can more quickly seek out, access, and share consumer-related information over the Internet. As a result, consumers are generally more aware of products, brands, and the actions of corporations. They are seeking out brands that they believe will work for them. These changes have led to a world where food markets are more fragmented and dynamic. Lack of product differentiation has led to a downward spiral of commoditization with price the chief differentiator for consumers. The survivors of this new world will be those food companies that can adapt to change with a more nimble innovation strategy, able to evolve their brands through a new approach to innovation – behavior-driven innovation.

A Time of Change

Never before in the history of human civilization have we seen such dramatic change in the way that people are able to connect to each other and to consumer brands. The landscape of consumer product markets has been reshaped – enabled and fostered by information technology that has changed the way that consumers seek and share their experiences with their peers. Consumers are rapidly changing in how they come to know, purchase, and consume food products.

In a few short years, we have seen the product ownership balance of power shift from brand owner to consumer. Brand owners are no longer able to drive demand through mass media marketing tactics. They are waking up to a world where peer-to-peer sharing has amplified the desires of the individual. Consumers have discovered their new power – a power to rapidly self-mobilize and place new demands on brand owners. Now sitting on top of the food chain is an empowered consumer, seizing opportunity in a new, proactive role to drive market change.

Product marketers, developers, creative chefs, package designers, marketing researchers, sensory scientists, and business managers are all striving to adapt to this change in their respective roles. Companies are seeking better ways to organize and streamline their innovation to sustain a competitive edge in this new environment.

This book is about innovation in the face of this change. In the chapters ahead, a more behavior-driven approach to innovation will be presented. This new approach shifts the focus of innovation from the product to the experience. It reshapes innovation from a linear to an iterative process driven by insights, based upon the science of emotions to motivate consumer behavior – delivering outcomes that consumers seek.

Societal Change

Social networking and social media are having far reaching effects on individual behavior; and the newfound power of the individual is changing society. Western culture, in particular, has been radically changed through social media with the formation of thousands of loosely held, virtual social communities held together by shared values, interests, passions, and beliefs.

These virtual communities are significantly altering consumer attitudes and values. Peer-to-peer sharing within virtual communities has increased awareness, enabling a much more informed consumer to take action. The millennial generation (also known as NetGens) are characterized as being more value-driven and their use of social media is having a dramatic influence on consumer markets. This generation includes 28% of Americans (88 million) born¹ between 1980 to 1995, compared to the 76 million Baby Boomers born between 1946 and 1960. We are just now seeing the impact of this generation on our culture. Eric Qualman, author of the bestseller Socialnomics (2009, John Wiley & Sons), notes that 97% of NetGens have joined a social network. One out of nine couples in the United States met through a social network. If Facebook were a country, it would be the world's fourth largest.

¹http://en.wikipedia.org/wiki/Demographics_of_the_United_States#Population_growth

As more and more people join in the social networking revolution, it is changing where people get information, how fast they get information and what sources they trust. Peer-to-peer information is now much more trusted than information sourced from brand owners. ² The impact of these changes in seeking and sharing behavior is also leading to a much more emotionally-driven consumer.

²http://www.edelman.com/trust/2009/docs/Trust_Book_Final_2.pdf

According to social psychologists, consumers are experiencing a sense of depletion in the current marketplace, having less time, energy, and financial resources. This creates more emotional and impulsive buying habits. Further, the speed by which information is shared on a global scale is resulting in dramatic shifts in consumer awareness, attitudes, and behaviors. The relationship between consumer, brand, and brand owner is more dynamic, ultimately impacting how consumers purchase products and change markets.

Consider what happened to Unilever when the Axe brand women falling at the feet of men commercial was aired in 2007 after their Dove brand had been running its self-esteem, real beauty campaign for three years. Consumer reaction was swift. Within 24 hours, the Internet was filled with YouTube™ videos and posts on blogs, social communities, consumer forums, and message boards venting anger at Unilever's hypocrisy – culminating in a special report by CNN. ³

³http://www.youtube.com/watch?v=dRNbZQ7K3vo&feature=player_embedded

Market Change

These societal changes are having a dramatic effect on consumer product markets. The growing surge of highly engaged, demanding, and emotionally-driven consumers is contributing to massive market fragmentation and dynamics. In 1980, Alvin Toffler (The Third Wave, William Morrow, 1980) coined the term prosumer in predicting a future where the distinction between producer and consumer is blurred. Welcome to our world today! More than 20 years later, Dan Tapsott and Anthony William redefined prosumer in their book Wikinomics (Portfolio, 2006) to mean a consumer who is more proactive in co-creating goods with manufacturers. In this book, a more behavioral definition of prosumer is introduced. This definition includes not only the typical consumer behaviors of selecting and consuming foods, but also the behavior of seeking out brands that consumers believe will work for them and the sharing of their discoveries with peers.

Understanding this behavioral definition is essential to all who are involved in product innovation and development. The behavior of seeking out and/or sharing is leading to a more dynamic marketplace. The speed by which opinions can be shared and information sought leads to markets that are becoming more fragmented. This fragmentation is accompanied by market churn, where loyalties of the past are eroding. This also opens up opportunities for companies to built new brand loyalties through a wide range of niche markets.

As populations grow and new social media-driven trends emerge, many of these fragmented, dynamic markets (i.e. niche markets) will no doubt form the basis for larger, main-stay markets in the future. Therefore, it is extremely important that corporations, as brand owners, begin planning for long term corporate sustainability. Consumer awareness of corporate behaviors will have long-lasting impact on how companies, the brands they own, and their messaging are trusted by consumers. Now, more than ever, products released under specific brands must perform against consumer expectations – to deliver on the promises of the brand.

This new world is now, more than ever, a brand-driven marketplace, driven by social issues such as social justice, sustainability, health and wellness, and a wide range of other issues including safety, longevity, and comfort. How consumers come to know brands, trust what they say and align with these issues will likely impact the success of brands and brand owners.

Commoditization

At the same time as food companies are trying to adapt to huge changes in society and markets, they are also facing steep declines in margins due to commoditization. Consumers are besieged with a myriad of product choices in retail stores. That consumer product selection is influenced by a breadth of factors ranging from thinning wallets, to an increase in the number of alternatives on the shelves, to how those choices will affect their lives. Consumers want products that will make their lives better at the lowest possible price, whether it's food, beverages, personal care products, or products for their homes.

CEOs, marketers, and researchers are finding it increasingly difficult to become differentiated in the eyes of the consumer. Consider the case of a brand owner marketing products within the canned beans category. How do you differentiate yourself from your competition? What does differentiate one can of beans from the next in the mind of the consumer? Traditionally, differentiation has come through assessing the needs of consumers and applying innovation to deliver features, functionality and sensory qualities that address these needs. However, this approach to innovation has not proven sufficient to break away from the chains of commoditization that grip most brands and squeeze margins. With pinched pocketbooks and a flood of competitive, quality store brands, we are seeing increased erosion in the bulwark that main brands have traditionally built.

With commoditization, one brand has no features that differentiate it from the other brands and as a result, the consumer makes decisions based on price alone. It is one of the most difficult marketing challenges a marketer faces. With commoditization comes increased competition, and the lack of differentiation creates a downward cycle of lowered consumer desire to seek new functionality or new and improved intrinsic qualities. Economic downturn and market complexity leads to consumers entering the marketplace with reluctance to pay for what they see as unnecessary features and qualities. Brand owners end up with extreme price sensitivity and the nightmare of increased pressure on margins. As a result, brand owners are reluctant to invest in the creation of new and improved products, settling for cost-cutting as a way to offset lower margins. In the end, both brand owner and consumer suffer: brand owners realize lower margins, consumers less value.

This pervasive trend has hit the food industry particularly hard. The rise of store brands and private labels by retailers has further exasperated this situation for both the consumer and brand owner. With this trend, retailers are now effectively competing with brand owners - their own suppliers. No other industry sees this pervasive a problem in product development. Consider some of these statistics:

• 25% of all food and beverage purchases are store brands (NPD Group Research Reports, 2009).

• 97% of all households purchase store brands (NPD Group Research Reports, 2009).

• 66% of respondents have purchased store brands in the past month (Consumer Reports, May 2009).

• Store brands are priced competitively, averaging 30% lower in cost (IRI, 2009).

• Store brand product quality is believed to be equal to name brands (Meyers Research, 2005).

These statistics paint a picture of an industry in turmoil. The food industry is struggling to find a new formula for operation, a new business model for innovation that breaks the downward spiral of commoditization, creating a new cycle of profitability for brand owners and value for consumers. Economic downturn in general, combined with a lack of product success, has created an uncomfortable position for the food industry.

Adapting To Change

Storm Clouds on the Horizon

In 1992, the food retail industry appointed the Efficient Consumer Response (ECR) Commission⁴ to assess the economic impact of product failure. They reported that the cost development and introduction of failed new food products was nearly $14 billion in the United States alone, twice as much as the profits from the 15 largest food companies that same year. Out of their analysis, the ECR identified four key areas as essential for getting the food industry back on track, and an efficient process for new product development was cited as most important.

⁴http://www.fmi.org/media/bg/?fuseaction=ecr1

However, in spite of numerous attempts to streamline and improve the innovation and development process, the spiral of increased failure continues. New product introductions of food and non-food items peaked in 2005, with a trending down to 2004 levels in 2008. ⁵ This downward trend reflects the industry's reluctance to bring new products to the market and risk failing.

⁵Information Resources, Inc., 15 Years of New Product Pacesetters: Excellence in Innovation Drives CPG to the Next Level, 2008

Another dramatic shift over the past 10 years is the proportion of new food product introductions that reach sales of over $20 million in their first year has dropped from 13% to 7%. In non-food categories, a drop from 22% to a low of 5% of all introductions has been observed. It is not surprising that as margins erode and success rates drop, we are seeing fewer new products introduced.

During the past three years, food industry pacesetters – companies having products with greater than $20 million in first-year sales with nationwide distribution – are experiencing greater return on investment with line extensions versus new product introductions. This may be an indication of an increased focus on niche markets instead of introducing new products into broad-based markets. Irrespective of what is at the root of these statistics, it cannot be denied that the food industry has been struggling for some time to create sufficient value for consumers to break the chains of commoditization, to discover new ways to reconnect with consumers and to create a new cycle of value growth.

The Perfect Storm

These collective changes form the basis for a perfect storm for industry change. Swept up in this storm are many corporate ships flying the flags of thousands of brands. How these corporations navigate the stormy waters of societal and market change will depend on how they innovate and develop – i.e. how they change their approach to serving the demands of these highly proactive, engaged consumers.

These stormy times have led to a new age of corporate awareness. The food industry is finding that traditional approaches to innovation and development are too slow and inflexible to respond to these marketplace dynamics. Companies are beginning to understand the need to become more socially driven, to see the building of corporate trust as a critical goal. Corporations are beginning to view their brand trust as a key asset and to apply this brand trust to transform from a goods manufacturer strategy to a brand manufacturer strategy. More niche products are being made to serve a wide range of dynamic, fragmented markets. More companies are discovering the importance of emotional branding and focusing innovation on sustaining relationships with their consumers. More emphasis is starting to be placed on design and development to deliver product experiences with emotional impact.

However, there are still fundamental gaps between the brand owner and consumer. The strategies that companies are taking lack a fundamental understanding for what is truly driving consumer behavior. Few frameworks exist that help brand owners, marketers, marketing researchers, designers, developers and sensory scientists to understand how to innovate with the important end outcome of innovation, i.e. consumer behavior, in mind.

Although awareness is the first step in making significant strides to adapt to change, most companies still appear caught with one foot in the past, where

innovation and development were conducted using linear, inflexible organizational processes, and where products were developed in bits and pieces within silos of domain experts. Companies are finding that these business practices no longer deliver a consistent flow of product successes. They are simply too slow, expensive, and inflexible.

To meet the short term, bottom line needs of food industry shareholders, companies are continuously reorganizing, seeking ways to cut expenses to maintain acceptable profitability. In reality, the resulting churn in employees is dramatically decreasing the knowledge capital retained by food companies. As historical knowledge gained through experience dissipates, the gap widens between brand owner and prosumer.

However, in these darkest of times, there is a silver lining ahead. Wikinomics described this storm as mass collaboration, characterizing the far reaching effects of technology change on not only consumers, but also on a wide range of emerging business processes and practices. The food industry, historically slow to embrace change, is beginning to show signs of applying mass collaboration to innovation. Innovation leaders in the food industry are starting to speak openly about the need for open innovation to increase the number of new ideas that have commercial viability. ⁶ Mass collaboration is now leading the way forward through a wide range of new technology-enabled tools and services that facilitate more easy-to-use, inexpensive and effective forms of engagement with consumers. In the chapters ahead, a number of case studies will show proof that the food industry is awakening to how it can apply these tools and services to design and develop new foods and packaging.

⁶http://www.foodnavigator.com/Science-Nutrition/Open-innovation-Food-industry-needs-better-strategies-says-review

However, technology alone cannot provide the new way forward out of the stormy waters of societal and market change. What is needed is a new paradigm for innovation that is enabled not just by technology, but by a new framework for innovation and development that is rooted in the science of consumer behavior. Only by combining technology with a basis of understanding of consumer behavior can the consumer packaged goods (CPG) industry truly adapt to change. This new paradigm for innovation and development must be aligned with the way consumers are seeking to change their world through their proactive consumer behaviors and also prove flexible enough to adapt to the dynamic marketplace.

The surviving corporate ships out there are the ones who are able to embrace this change as an opportunity to build